It appears 2016 is
shaping up to be a strong year for revenue growth at Gatekeeper Systems Inc.
(TSXV: GSI - $0.11), but the Company’s stock price is still trading near its
lows. Therefore, we see a good small cap growth investment opportunity at a
value price. That said, Gatekeeper Systems Inc. has become one of
Investorfile’s Top Ideas.

Gatekeeper’s value proposition goes beyond the sale of video
devices but, rather, the integration of hardware and software to provide
systems that derive significant value from the data collected from installed
mobile cameras. As such, Gatekeeper’s industry-leading Incident Management Software synchronizes real-time
video, mapping, audio and vehicle sensors to create a total picture of
operations. The Company’s photo enforcement technology and auto-ticketing
software protect students on buses, school and parking zones by deterring bad
driving habits.

Gatekeeper is a
brand leader in outfitting school buses in North America
with mobile video systems. Gatekeeper’s technology platforms are used for
recording incidents inside and outside school buses. For recording inside
school buses, the platform integrates high definition video with GPS, voice,
live streaming, WIFI and vehicle sensors recorded to an onboard military-grade,
high-definition digital video recorder. The software synchronizes video, date
and time, voice, vehicle sensors such as activation of stop arms, signals, brake
and warning lights, door switches or other electronic sensors. The synchronized
data is then displayed on Gatekeeper’s video management software, allowing the navigation of hundreds of hours of recorded video to find,
save and share as evidence by school officials or law enforcement should a
security or safety incident occur. There are approximately 550,000 school buses
operating in the USA
with an average of 25,000 to 50,000 school buses manufactured each year
according, to Gatekeeper.

Recent legislation
in some states and provinces allow authorities to use video from a school bus
video system as evidence to issue a citation for stop arm violations which
occur when buses are stopped, the stop arm is engaged and/or children are
getting on or off the school bus. Gatekeeper has developed a high-speed license
plate reading system which is attached to the outside of the school bus and
records video evidence required to prosecute stop arm violators. With that, the
Company developed a cloud-based software application with the trade name TIM
(Ticket Infraction Management) system that connects to the vehicle owner
database and manages the entire citation cycle for stop arm infractions.

Gatekeeper has
marketed its school bus stop-arm violations solution to school boards and law
enforcement districts under a recurring revenue sharing model based on a split
of the dollar amount of citations issued and collected. The average citation is
usually between US $250.00 and US$500.00. The Company said it is estimated that
over 13 million stop arm violations occur in the United States annually.

Gatekeeper’s
stop-arm enforcement application is currently installed and in pilots on school
buses in 16 school districts. The Company anticipating recurring revenue
streams from its stop-arm business to begin within its current fiscal year.

While to date the
majority of sales are in the school bus market, Gatekeeper’s products are
scalable for transit buses, law enforcement vehicles and officers, aircraft,
taxis and general fleet vehicles; maritime applications including coast
guard patrol boats and navy vessels, as well as homeland security and defence
applications, including special operations. As such, the Company recently
launched several new products including: Body cameras for law enforcement;
high-definition in-car video systems for law enforcement vehicles and
high-definition airborne digital recorders for aerospace applications that will
meet certain military standards, including electronic magnetic interference.

Over the past nine months,
the Company has implemented new sales and marketing strategies to strengthen
Gatekeeper’s brand awareness while adding distribution partners to complement
its direct sales team. As a result, revenues have begun to grow more significantly.
The last quarter reported (which was fiscal Q2 ending on February 29, 2016),
the Company’s revenues jumped 59% to C$1.73 million. But that may be was just
the beginning. Gatekeeper’s Management has provided guidance that Q3 sales
should set a Company record, coming in at over C$2.49 million, and Q4 sales
could be another record sales quarter. Gross margins on sales average about
50%. Approximately 90% of Gatekeeper’s revenues are derived from customers in
the USA.

With the increase
in revenues the Company reported a slight profit in fiscal Q2. As revenues
continue to rise in Q3 and Q4, profitability at Gatekeeper could become more
pronounced. As such we feel Gatekeeper’s operations are at an inflection point
that makes the Company’s stock an attractive investment opportunity.

We estimate that
for fiscal 2017, Gatekeeper could average a C$3 million quarterly revenue run
rate (C$12 million annually), generating C$2 million of earnings before
interest, taxes, depreciation and amortization (EBITDA) for the fiscal year. Based
on this forecast and given the current capital structure, the Company’s stock (at $0.11) trades at a valuation under 3.5 times Enterprise Value (EV) to
EBITDA. This is a very inexpensive price for a growth company.

The Investorfile
blog recommends that small cap investors should take advantage of the current
stock valuation levels and begin accumulating shares of Gatekeeper up to a
price of $0.25. Assuming an average accumulation cost base of $0.18, a stock
position in this Company can be purchased for under six times EV/EBITDA (based
on our forecast), which is a value-wise small cap investment opportunity. Of
course, over time we feel that Gatekeeper will exceed our annual financial
projection and therefore the stock price will exceed our accumulation price
target of $0.25 for more upside over the longer term.

As of February 2016
fiscal Q2, the Company had a strong balance sheet with cash on hand of
$700,000, no debt and a working capital ratio of over 3:1.

Management and
directors own about 15% of the Company shares. The BC Discovery Fund, an
institutional investor, has an 8% ownership position in Gatekeeper.

The Company
currently has 63.3 million shares outstanding. Of note, about 12 million share
purchase warrants (from a prior equity financing) are outstanding at strike
price of $0.25.

This
article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.

Investorfile.com
is not engaged in an investor relations agreement with Gatekeeper Systems Inc. nor has it received any compensation from Gatekeepers System Inc. the preparation or distribution of this article.

The
author of this article has acquired and may trade shares of Gatekeeper Systems Inc. through open market transactions and for investment purposes
only.

Hi Gerry,
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Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.